A Researcher’s Guide to
Class Action Securities Fraud
Litigation
By Darby K. Hildreth
Information is current as of
March 4, 2002
Table of Contents
I. INTRODUCTION
II. IDENTIFYING RESEARCH TERMS
III. SECONDARY SOURCES
A. Legal Encyclopedias
1. Am. Jur. 2d
2. C.J.S.
B. A.L.R. Annotations
1. Federal: A.L.R. Fed.
2. State: A.L.R. 3d, 4th, 5th
C. Legal Periodicals
1. LegalTrac
2. Westlaw
D. Treatises
E. Restatements
By Darby K. Hildreth
Page 2 of 52
Table of Contents
(continued)
IV. PRIMARY AUTHORITY
A. Cases
1. Federal Digests
a. U.S. Supreme Court Digest
b. Federal Practice Digest 4th
2. Regional Digest
a. Pacific Digest
3. State Digest
a. Colorado Digest
B. Statutes
1. Federal: U.S.C.A.
a. Securities Exchange Act of 1934
b. Legislative Documents
c. U.S. Constitutional Authority
2. State: West’s C.R.S.A.
a. Colorado Securities Act
b. Limiting Liabilities of Dirs./Officers
c. Uniform Securities Act (1985)
By Darby K. Hildreth
Page 3 of 52
Table of Contents
(continued)
IV. PRIMARY AUTHORITY (...continued)
B. Statutes (...continued)
2. State: West’s C.R.S.A. (...continued)
d. Model Business Corporation Act
C. Administrative Materials
1. Federal: CFR
a. Federal Agency Web Site
b. Agency Decisions
2. State: CCR
a. State Agency Web Site
b. Agency Decisions
V. PRACTICE MATERIALS
A. Looseleaf Services
1. CCH, Inc.
2. BNA, Inc.
3. Matthew Bender
By Darby K. Hildreth
Page 4 of 52
Table of Contents
(continued)
V. PRACTICE MATERIALS (...continued)
B. Federal
1. Am. Jur. Trials
2. Am. Jur. Proof of Facts
3. Am. Jur. Pleading and Practice Forms
4. Causes of Action
5. Moore’s Federal Practice
6. Wright’s Federal Practice and Procedure
7. Applicable Forms
C. State
1. West’s Colorado Law Finder
2. West’s Colorado Methods of Practice
a. Colorado Business Corporation Act
Deskbook
b. Colorado Civil Rules Annotated
c. Colorado Civil Trial Practice
3. Colorado Law Annotated
4. Applicable Forms
By Darby K. Hildreth
Page 5 of 52
Table of Contents
(continued)
VI. ONLINE MATERIALS
A. Commercial: Westlaw
B. Internet
1. Applicable Web Sites & Organizations
a. State Sources
b. Federal Sources
c. Other “Independent” Sources
2. Specific Publications of the Organizations
VII. OTHER SOURCES
A. Jury Instructions
B. Self Help Books for Lawyers
C. Self Help Books for Clients-Investors
VIII. CONCLUSION
By Darby K. Hildreth
Page 6 of 52
I.
Introduction
•
•
•
§ 10(b) of the 1934 Securities Exchange Act, together with
SEC Rule 10b-5, were enacted to protect investors from
“insider trading” and from “material misrepresentations or
omissions” by Officers and Directors of public companies
which have stock that is trading in the secondary markets
Unlike other litigation, securities fraud cases typically
– do not go to trial, but rather settle for the amount of the
Directors’ & Officers’ Liability Insurance
– the American Rule for Attorneys’ Fees does not apply and
instead, plaintiffs’ counsel are retained on a contingent
fee basis
– the Private Securities Litigation Reform Act (PSLRA)
applies to all federal securities fraud cases and requires
more rigorous pleading standards than Federal Rule Civil
Procedure 9(b) [“fraud with particularity”]
– the PSLRA also creates a huge procedural difference
from other types of litigation because discovery is
“stayed” pending the outcome of defendants’ 12(b) motion
to dismiss
So while securities fraud litigation is a very complex area to
research, the following guide will help simplify the process
By Darby K. Hildreth
Page 7 of 52
II.
Identifying Research
Terms
•
General Search Terms
–
–
–
–
–
–
–
•
Litigation
Class Action
Securities Regulation
Insider Trading
Duty of Loyalty
Fiduciary Duty
1934 Securities Exchange Act
Specific Search Terms
– PSLRA (Private Securities Litigation Reform Act) of 1995
– § 10(b) & Rule 10b-5
• Elements: 1) Scienter; 2) Materiality; 3) Causation; 4)
Reliance; 5) Damages
– Material Misrepresentation or Omission
– “In Connection With”
– Civil Procedure Rule 23 [Class Actions]
By Darby K. Hildreth
Page 8 of 52
VI.
Online Materials
A. Commercial: Westlaw
–
Summary of database coverage:
• Database Identifier: “FSEC-ALL” [provides the user with Combined
Federal Securities Materials, which includes Federal Securities and Blue
Sky Case Law; Federal Statutes, Rules and Regulations; and Federal
Administrative Law]
• KeySearch: Select “Securities Law;” Select “Insiders;” Select “Fraud;”
Choose a source: “Cases with West Headnotes;” Select a State Court’s
Jurisdiction (e.g., “Colorado State” or “Colorado Federal & State”);
and/or Select a Federal Court’s Jurisdiction (e.g., “All Federal Cases” or
“Tenth Circuit Federal Cases” or “Securities Law Cases”); Add “search
terms (optional);” Click “Search;” and case results are displayed.
• “Directory” Search: Select “Topical Materials by Area of Practice;”
Select “Securities;” Select the desired Source (e.g., “Federal Securities
Materials Combined” or “U.S. Code Annotated”); Enter a word or phrase
in the “Terms and Connectors Query;” Click “Search;” and all relevant
results are displayed.
• “Directory” Search: Select “Topical Materials by Area of Practice;”
Select “Litigation;” Select the desired Source (e.g., “Combined Federal
& State Cases” or “Jury Verdicts, Settlements & Judgments”); Enter a
word or phrase in the “Terms and Connectors Query;” Click “Search;”
and all relevant results are displayed.
By Darby K. Hildreth
Page 9 of 52
VI. (continued)
Online Materials
B.
Internet
1. Applicable Web Sites & Organizations
a. State Sources
–
–
Colorado Division of Securities (a unit of the Colorado
Department of Regulatory Agencies) –
http://www.dora.state.co.us/securities/index.htm
North American Securities Administrators Association (NASAA)
– other State securities regulators; an association of State and
provincial securities administrators, which issue “Statements of
Policy” on various substantive and procedural questions –
http://www.nasaa.org/nasaa/abtnasaa/find_regulator.asp
b. Federal Sources
–
–
–
U.S. Securities and Exchange Commission (SEC) – the federal
securities regulator - http://www.sec.gov/
National Association of Securities Dealers, Inc. (NASD) –
regulates the securities industry and “oversees virtually all U.S.
stockbrokers and brokerage firms” - http://www.nasdr.com/
Commodity Futures Trading Commission (CFTC) – “protects
market participants against manipulation, abusive trade practices
and fraud” - http://www.cftc.gov/cftc/cftchome.htm
By Darby K. Hildreth
Page 10 of 52
VI. (continued)
Online Materials
B.
Internet (…continued)
1. Applicable Web Sites & Organizations (…continued)
b. Federal Sources (…continued)
–
–
National Fraud Information Center (NFIC) – “offers consumers
advice about promotions in cyberspace and route reports of
suspected online and Internet fraud to the appropriate government
agencies; and “fights telemarketing fraud by improving
prevention and enforcement” - http://www.fraud.org/
U.S. Federal Trade Commission (FTC) – “works to enhance the
smooth operation of the marketplace by eliminating acts or
practices that are unfair or deceptive. In general, the
Commission's efforts are directed toward stopping actions that
threaten consumers' opportunities to exercise informed choice” http://www.ftc.gov/
c. Other “Independent” Sources
–
Investor Protection Trust (IPT) – “serves as an independent
source of non-commercial investor education materials and
assists in the prosecution of securities fraud” http://www.investorprotection.org/
By Darby K. Hildreth
Page 11 of 52
VI. (continued)
Online Materials
B.
Internet (…continued)
1. Applicable Web Sites & Organizations (…continued)
c. Other “Independent” Sources (…continued)
–
–
–
Legal Information Institute at Cornell Law School (LII) –
provides a category “Current Awareness” and link “Eye on the
Courts,” which allows you to track down and gain “quick access
to appellate decisions that are in the news.” In addition, under the
category “Current Awareness” and link “Big Ear,” this site
supplies “current legal resources on the net” and offers “a view of
what's new on the Net for lawyers, and of what people are talking
about,” while providing the convenience of subscribing to emailbulletins to keep current with U.S. Supreme Court decisions. http://www.law.cornell.edu/
WashLaw WEB at Washburn University (WashLaw) – provides a
category “10th Circuit,” which is considered the “premier source”
for locating past as well as keeping current with 10th Circuit
opinions. In addition, under the category “Topical Index,” this
site supplies a list of “Internet Resources” with relevant web site
links for “Securities Law.” - http://washlaw.edu/
Securities Class Action Clearinghouse at Stanford Law School
(The Clearinghouse) – “provides detailed information relating to
the prosecution, defense, and settlement of federal class action
securities fraud litigation,” including “full text searchable copies
of more than 2000 complaints, briefs, filings, and other litigationrelated materials.” - http://securities.stanford.edu/
By Darby K. Hildreth
Page 12 of 52
VI. (continued)
Online Materials
B.
Internet (…continued)
1. Applicable Web Sites & Organizations (…continued)
c. Other “Independent” Sources (…continued)
–
–
Securities Industry Association (SIA) – “nearly 700 securities
firms (including investment banks, broker-dealers, and mutual
fund companies)” are members of the SIA, which aspires to
“maintain the public's trust and confidence in the securities
industry and the US capital markets.” Its web site organizes
articles into the following topics: “arbitration,” “brokers,”
“investors,” and “corporate finance.” - http://www.sia.com/
American Bar Association (ABA) – provides a category
“Entities,” and link “Sections,” which gives access to the
organization’s specific sections http://www.abanet.org/home.html, in particular:
• Business Law Section http://www.abanet.org/buslaw/home.html
• Litigation Section http://www.abanet.org/litigation/home.html
2. Specific Publications of the Organizations
–
American Bar Association’s Securities Litigation Committee - publishes a
quarterly journal entitled Securities News, which contains cutting-edge articles
on the specific areas of securities litigation and class action securities fraud
cases
By Darby K. Hildreth
Page 13 of 52
VI. (continued)
Online Materials
B.
Internet (…continued)
2. Specific Publications of the Organizations (…continued)
–
–
–
American Bar Association’s Section of Litigation publishes a quarterly journal
entitled Litigation, which addresses issues that confront litigators in every field
and seeks to do so through practical and readable articles discussing all aspects
of litigation
American Bar Association’s Business Law Section publishes a news magazine,
every other month entitled, Business Law Today, which is “a quick update” for
busy business lawyers, including “color graphics and no footnotes.”
American Bar Association’s Business Law Section publishes a quarterly journal
entitled, The Business Lawyer, which “contains articles of significant interest to
the business lawyer, including case law, analysis, developing trends and
annotated listings of recent literature.”
By Darby K. Hildreth
Page 14 of 52
VII.
Other Sources
A. Jury Instructions
–
Model Jury Instructions: Securities Litigation (American Bar Association,
1996) - provides sample jury instructions with Supporting Authorities for both
plaintiffs and defendants
Chp. 1: Securities Litigation Generally [p.5-13]
§ 1.03 - More than One Plaintiff
§ 1.08 - Sophisticated Investors
§ 1.09 - Interstate Commerce
Chp. 4: Section 10(b) [p.79-113]
§ 4.01 - Section 10(b) Claims - Introduction
§ 4.02 - Elements for Primary Liability Under Section 10(b)
§ 4.03 - Secondary Liability Under Section 10(b)
§ 4.04 - Damages
–
Colorado Jury Instructions 4th - Civil by Colorado Supreme Court
Committee on Civil Jury Instructions (West Group, 2001 Supplement)
Vol. 2: Chp. 26 - Breach of Fiduciary Duty
§ 26:1 - Elements of Liability
§ 26:2 - Fiduciary Relationship - Defined
§ 26:3 - Fiduciary Relationship Arising Out of a Confidential Relationship - Elements
§ 26:4 - Duties of a Fiduciary - Defined
§ 26:5 - Actual Damages
–
Colorado Courtroom Handbook For Civil Trials by Victoria C. Swanson
(Continuing Legal Education in Colorado, Inc., May 2001 Supplement) “covers every phase of civil trials in both state and federal courts and provides
concise, accurate information on both procedural matters and evidentiary
issues, with citations to the most pertinent authorities”
Chp. 1: Pre-Trial
§ 1.1 - Colorado State Pre-Trial Practice
§ 1.2 - Colorado Federal District Court Practice
Chp. 19 - Jury Instructions
By Darby K. Hildreth
Page 15 of 52
VII.
Other Sources
A. Jury Instructions (…continued)
–
Colorado Jury Instructions for Civil Trials by Continuing Legal Education in
Colorado, Inc., 2000 Supplement)
Chp. 19: Deceit Based on Fraud
§ 19:1 - False Representation - Elements of Liability
§ 19:2 - Nondisclosure or Concealment - Elements of Liability
§ 19:3 - False Representation - Defined
§ 19:4 - Material Fact - Defined
§ 19:5 - Nondisclosure - Duty to Disclose
§ 19:6 - Concealment - Defined
§ 19:7 - False Representation - Reliance Defined
§ 19:17 - Actual Damages
B. Self Help Books for Lawyers
–
–
–
McElhaney’s Trial Notebook (3rd Edition) by James W. McElhaney
(American Bar Association, 1994) - a comprehensive book on trial technique
that is written in Plain English and incorporates famous quotes and stories for
easy understanding for the reader
Survey of Securities Class Actions and Derivative Suits 1999: A Report of
the Subcommittee on Class Actions and Derivative Suits Securities
Litigation Committee by Ronald Jay Cohen (American Bar Association, 2001)
- a survey of significant opinions in securities class actions for 1999 to inform
the reader about developments in the law
Corporations: Examples and Explanations, 3rd edition, by Lewis D.
Solomon & Alan R. Palmiter (Aspen Law & Business, 1999) - discussing the
fiduciary duties of care and loyalty for directors and officers [§§ 11.2 & 13.113.5]; securities fraud under Rule 10b-5 [§§ 22.1-22.5]; and insider trading [§§
23.1-23.3.4]
By Darby K. Hildreth
Page 16 of 52
VII.
Other Sources
B. Self Help Books for Lawyers (…continued)
–
–
–
Securities Regulation: Examples and Explanations by Alan R. Palmiter
(Aspen Law & Business, 1998) - discussing Rule 10b-5 [§§ 9.1-9.5.4] and
Insider Trading [§§10.1-10.2.4]
Securities Regulation: In a Nutshell, 6th edition, by David L. Ratner (West
Group, 1998) - discussing the 1934 Securities Exchange Act antifraud
provisions and Rule 10b-5 [§§ 18-19]; civil liabilities & damages [§§ 38-40];
and State regulation [§§ 45-49]
Securities Litigation Uniform Standards Act of 1998: Law and Explanation
“provides explanation and text of the 1998 Act, which made federal court the
exclusive venue for most securities fraud class actions. The Act was passed to
ensure that securities fraud class actions involving securities traded on national
markets are governed by a single set of uniform standards. Discussion focuses
on the Act’s provisions concerning covered class actions, stay of discovery and
preservation of state court jurisdiction in certain cases. Also included is text and
analysis of the legislative history: the conference report, the Senate Banking
Committee Report, and the House Commerce Committee Report. Analysis of
the legislative history includes coverage of substantial debate over the proper
standard for pleading scienter in a securities fraud action” (CCH Incorporated,
Nov. 1998)
C. Self Help Books for Clients-Investors
–
–
The Intelligent Investor: A Book of Practical Counsel by Benjamin Graham &
Warren E. Buffett, 4th Rev. Edition (HarperCollins Publishers, December 1985)
– “offers sound and safe principles for investing”
CNBC Guide to Money and Markets: Everything You Need to Know About
Your Finances and Investments by CNBC & Jeff Wuorio, 1st edition (John
Wiley & Sons, December 15, 2001)
By Darby K. Hildreth
Page 17 of 52
VII.
Other Sources
C. Self Help Books for Clients-Investors (…continued)
–
–
–
–
The Secret Code of the Superior Investor: How to Be a Long-Term Winner in a
Short-Term World by James K. Glassman (Crown Publishing Group, January 2,
2002)
The All-Season Investor: Successful Strategies for Every Stage in the Business
Cycle by Martin J. Pring (John Wiley & Sons, March 1992)
Essential Lessons for Investment Success: Learn the Most Important
Investment Techniques from the Founder of Investor’s Business Daily by
William J. O’Neil (McGraw-Hill Professional, January 2000)
Street Words: An Essential A to Z Guide for Today’s Investor by David L. Scott
(Houghton Mifflin Company, September 1997)
By Darby K. Hildreth
Page 18 of 52
VIII.
Conclusion
Traps to Avoid in Conducting § 10(b) Securities Fraud
Research:
1. Recognize that § 10(b) is accompanied by SEC Rule
10b-5, so agency opinions and releases play an
important role in interpreting the correct meaning
2. A § 10(b) claim is the “common name” for a cause of
action under the 1934 Securities Exchange Act, but in
researching this claim, it is found under 17 C.F.R. §
240.10b-5
3. Since § 10(b) is an implied remedy, which is based on
federal common law, it is key to keep the dates of court
opinions in mind when conducting your research
because the law dramatically changed after December
1995, when Congress enacted the PSLRA (Private
Securities Litigation Reform Act)
4. Federal courts have exclusive jurisdiction over § 10(b)
claims, pursuant to 15 U.S.C.A. § 78aa, so to avoid the
embarrassment of removal or dismissal, file your case
in federal court, not state court (leave state common law
claims like breach of fiduciary/duty of loyalty to state
venues)
By Darby K. Hildreth
Page 19 of 52